Analysis and criticism of America's most prominent public intellectual and champion of Keynesian economics. I am part of the Austrian School of Economics, and I critique Krugman's writings from that perspective.

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Friday, March 30, 2012

Well, guess what? I'm a health-care expert. In fact, I was employed as
one for two years by the same boss who employed Paul Krugman, namely,
Martin Feldstein. From 1982 to 1984, I was the senior economist for
health policy with the Council of Economic Advisers. I don't find the
comparison horrifying at all.

Here's why. If you don't buy health insurance until you're sick,
then when you get sick, you drive up the price of health insurance for
others. If you don't eat broccoli, and your not doing so makes you
sick, you drive up the price of health insurance for others.

Now, there is a way around both conclusions: allow health
insurance companies to sell insurance, as that term is generally
understood. Let them price according to risk. Then, when people don't
buy health insurance until they are sick, the price will be quite high
and they will not be subsidized by others. Similarly with broccoli. If
eating broccoli makes you healthier, and if that health can be
measured, your insurance rates, all else equal, will be lower. Those
who refuse to eat broccoli will have worse health and will pay higher
rates.

[End update]

Paul Krugman's recent column on the "broccoli" question reveals a number of things, including Krugman's insistence that government can create a wonderful medical system through coercion, and anyone who disagrees wants people to get sick and die. That is a pretty typical Krugman argument -- those who agree with him do so for the most evil of reasons -- and Don Boudreaux has his own rejoinder in his Cafe Hayek response:

Never mind that Mr. Krugman here implicitly demands that the Court do what all of a sudden horrifies so many “Progressives,”
namely, ground its constitutional rulings on detailed analyses of facts
and policy. Such analysis would indeed expose several practical
differences between commerce in vegetables and commerce in insurance.

Focus instead on Mr. Krugman’s failure to understand that there is indeed a relevant and looming similarity
between broccoli and insurance – a similarity that likely sparked
Justice Scalia’s question. If my failure to buy health insurance puts
upward pressure on health-care costs for other Americans – and thus
justifies the government forcing me to buy insurance – doesn’t my
failure to eat a healthy diet likewise put upward pressure on
health-care costs for other Americans and, thus, justify the government
forcing me to buy broccoli? If not, why not?

Given government’s zeal to control ever-more aspects of private life, such questions are not Constitutionally trivial.

With Michelle Obama jetting around the country telling people what they can and cannot eat, and the Food Police being ramped up, I find it interesting that Krugman attacks the whole "broccoli" issue. After all, the government that Krugman so lionizes is doing everything it can to force people to purchase and eat Obama-approved food and the Food Police are seeking and gaining more power every day.

As for insurance, I find it interesting that Krugman is so gung-ho about using coercion as a means to further what really are government schemes. The point is that if government can coerce you to purchase one thing -- semantics about products and taxes aside -- government can coerce you to purchase anything that Progressives believe is "good for society."

In the end, Paul Krugman is all about Rule of Force. Progressives like himself determine what is good for everyone else, and then others are forced to obey -- or go to prison. That is the reality of Krugman's Progressivism.

Sunday, March 25, 2012

[Update]: In his screed that is the subject of this post, Krugman claims that corporations are the main reason for the rise in prison population. Notice that he conveniently leaves out the role of public employee unions, both police and especially prison guards.

While I agree that there is a moral hazard with private prisons, nonetheless I also believe that government employees are in the category of "interest groups," and that we should not be surprised when a powerful union of prison guards seeks what it best for its members -- at the expense of greater society and also the law itself. Krugman ignores that in large part, I believe, because he is so ideologically tied to labor unions that any criticism of any union to him is anathema. [End update]

Our democracy is under siege, according to Paul Krugman. Why? Because corporations have lobbied for bills in which people are permitted to shoot whomever they want because they allegedly feared for their lives. Yes, the same people who push for more prisons somehow also don't want people who shoot other people to be arrested.

Given that cops shoot unarmed people to death all the time and rarely face any sanctions for it, somehow I doubt that "stand your ground" legislation represents any kind of a threat at all, and in the Martin case, the law did not even apply. (Not that accuracy matters. After all, we ARE dealing with the New York Times, which managed to produce some of the most inaccurate and dishonest copy I ever have seen in its "coverage" of the Duke Lacrosse Case.) No, I never have seen Krugman complain about police killing other people, nor have I ever read anything by him in which he complained of prosecutorial misconduct. Hardcore statists are not going to be upset when the state brutalizes innocent people because, after all, what we need is stronger government.

(In this column, Krugman effectively says that people who are being attacked should not be able to defend themselves, and if they do defend themselves, they should be prosecuted. Canada and Great Britain both have laws which prohibit self-defense, which means that anyone who is attacked and tries do defend himself or herself with what the government deems an "offensive weapon" will be arrested.)

Now, unlike Paul Krugman and others on the NYT editorial page, I really don't know what happened in the Martin case. From what I have read, the picture of George Zimmerman being something akin to a Klansman has not matched reality, but, again, the last thing the NYT wants is a dose of reality. It is clear that Zimmerman, who actually would be listed as Hispanic in American racial data, is not the person the NYT wants him to be, so Krugman and the others will have to use their imaginations, just as the NYT did during the Duke case.

The Krugman column, however, is not just about the Martin killing. No, Krugman wants us to believe that Crony Capitalism is just about people whose politics differs from his. He writes:

What this tells us, in turn, is that ALEC’s(American Legislative Exchange Council) claim to stand for limited government and free markets is deeply misleading. To a large extent the organization seeks not limited government but privatized government, in which corporations get their profits from taxpayer dollars, dollars steered their way by friendly politicians. In short, ALEC isn’t so much about promoting free markets as it is about expanding crony capitalism.

Now, this is the same Krugman who says that government should be spending hundreds of billions of dollars to prop up failing solar energy firms, not to mention the United Auto Workers and GM. Yes, that was Crony Capitalism in action, but since the cronyism involved people in Krugman's political corner, that was OK.

As this article demonstrates, environmentalism also is a lobby, a huge lobby with hundreds of millions of dollars to spend. For that matter, Krugman constantly complains about the Kochs "subverting democracy," but he is silent on George Soros, who spends more money in a year on hard-left causes than the Koch Brothers have spend in their lifetimes on their pet causes. But, then, Krugman approves of Soros, so even though Soros is doing exactly what others are doing, that is OK, something the ancients once called hypocrisy.

What I also find interesting is that Krugman and his friends at the NYT are quite selective in their complaints about "subversion of democracy." When the Komen Foundation recently said it no longer was going to give money to Planned Parenthood, the PP lobby went into action.

Now, here is an organization which receives both tax money and charitable dollars, but somehow it is OK for it to launch a huge and destructive lobbying campaign to smash another charitable organization, one that has done much more good than Planned Parenthood -- the nation's leading abortion provider -- has ever done. Think about it; the Komen foundation is pretty much ruined because of the hate campaign that Planned Parenthood and its allies at the NYT launched against it.

If that does not subvert everything decent in our society, then I don't know what does. Yet, that kind of destruction is OK because, after all, nothing but nothing can ever get in the way of abortion on demand. To do so, I guess, would "subvert our democracy."

But Krugman is not done. Here he writes:

Yet that’s not all; you have to think about the interests of the penal-industrial complex — prison operators, bail-bond companies and more. (The American Bail Coalition has publicly described ALEC as its “life preserver.”) This complex has a financial stake in anything that sends more people into the courts and the prisons, whether it’s exaggerated fear of racial minorities or Arizona’s draconian immigration law, a law that followed an ALEC template almost verbatim.

Think about that: we seem to be turning into a country where crony capitalism doesn’t just waste taxpayer money but warps criminal justice, in which growing incarceration reflects not the need to protect law-abiding citizens but the profits corporations can reap from a larger prison population.

Now, anyone who reads my other blog knows what I think of the Prison-Industrial Complex. Furthermore, I think that at one level here Krugman is right. However, it is not corporations that are filling our prisons; no, it is the Drug War, and never, not once, have I seen Paul Krugman write one word against the madness that is the War on Drugs.

Furthermore, as John Stossel recently noted in one of his specials, criminal law is metastasizing, and especially federal criminal law. Much of my other blog deals with the outcomes of certain federal laws that have resulted in massive numbers of false accusations and imprisonment of the innocent.

Yet, Krugman is silent on this scourge, and it does not surprise me. Paul Krugman is a huge supporter of the vast expansion of federal power, and when the feds pass legislation like the Mondale Act and the Violence Against Women Act, both of which have fueled the false accusation industry, I am sure that Krugman heartily approves. After all, one needs to "break eggs" in order to make an omelet, and if the innocent are mowed down in order to create a better world, then so be it.

In the Martin case, the NYT, not to mention President Barack Obama, have helped to create a lynch mob atmosphere against George Zimmerman. Given the president's rhetoric, the Department of Justice MUST return indictments and it MUST gain a conviction, no matter if Zimmerman actually is guilty of murder or not. A political constituency that has been riled needs to be mollified, and Zimmerman's head on a platter is what the president is going to deliver.

No, people like Krugman won't speak out about such things because I am sure that Krugman doesn't care. Hey, he has his narrative, the NYT has its narrative, and if the world doesn't fit the narrative, who cares? The narrative must win because the state must grow in power, and if people are abused along the way, that is just the eggs being broken so that government can create a delicious omelet.

Thursday, March 22, 2012

Now that a Democrat is in the White House, I find it interesting that near-record gasoline prices somehow have nothing to do with Barack Obama. When gas prices four years ago went up under the Bush White House, Democrats quickly claimed that it was Bush's fault.

And even though Krugman the economist should know that blaming speculators is like blaming wind for a tornado, we see that he keeps silent, which makes me wonder if he really believes this nonsense -- or if he is being cynically quiet. Either way, it seems that he is endorsing paranoia, or at least paranoia that is partisan in nature. (Gee, what happens when oil prices fall? Does that mean that speculators are taking a day off?)

Of course, what is a Krugman column that does not make excuses for Obama? During the campaign, Obama said that policies he wanted to put into place would cause energy policies to "skyrocket." Krugman says that the term was "unfortunate," although I doubt he would be so gracious to a Republican or to someone like Ron Paul.

“Somehow we have to figure out how to boost the price of gasoline to the levels in Europe”

Chu conveniently claims he does not believe that now, although I doubt he is telling the truth. Like so many other Progressives, Chu believes that Americans should be forced into a lifestyle that people like Chu, Krugman, and Obama have no plans of adopting for themselves.

Then there is the small issue of the dollar and the fact that oil prices worldwide are denominated in that currency. The Ben Bernanke Fed is showering the world with dollars (although Krugman believes not enough dollars), so we should not be surprised that when the Fed deliberately engages in inflationary policies, that energy prices -- and other commodity prices, for that matter -- are going to go up.

Not surprisingly, Krugman calls all of this "paranoid." When people take Obama and his administration at their word that they want to force Americans out of fossil fuels (which Obama has vilified), and then the results create real economic pain, then suddenly we are supposed to believe that whatever Obama and his minions have said is irrelevant.

Once again, we see Paul Krugman abandoning economics for partisan rhetoric. No, we should not be surprised. Remember his claim that because Grover Norquist had once said that we should reduce government to a size where it can be "drowned in a bathtub," therefore all Republicans are wanting to do the same? Yes, the Bush administration was trying to reduce government. And I have a bridge in Brooklyn to sell to Krugman.

Monday, March 19, 2012

I have a lot of arguments with Keynesians, the first being that they are not really speaking of economics, per se, but rather concentrate upon the administration of state power. To a Keynesian, there are no real costs, no real prices, and money simply is something to be manipulated by state authorities in order to facilitate wealth transfers.

Keynesians, from what I can tell, really have no idea how wealth is created, and in the advocating of the "euthanasia of the rentier," they really mean the doing away with entrepreneurship altogether and replacing it with a form of central planning. When Keynes wrote in the German edition to The General Theory that it would be easier to implement his ideas in a dictatorship than is a democratic state, he was not giving his stamp of approval to Hitler, but rather was saying that government economic planning would be easier when people did not get in the way.

Although much of the economy does not have the hardcore central planning that Keynes and his followers might have wanted, one area where socialism effectively has been implemented has been medical care. In fact, American medical care is one portion of the economy in which the staples of a free economy -- free prices and private property -- pretty much do not exist. Yes, there are things we call prices and there are some privately-owned portions of the medical system, but they are controlled or monitored by state authorities to a point where a market hardly is recognizable.

To Paul Krugman, this is a wonderful state of affairs, except that the government really should have even more control, all in the guise of reform. In his most recent column, he claims that Obamacare somehow is making the medical system better, controlling costs, and proving that socialism really does work in medical care.

I'm not going to get into a spitting match over the Republicans versus the Democrats or the latest numbers from the Congressional Budget Office. There is a larger issue here, one that Krugman and the rest of Washington, D.C., ignores, and that is the fact that state-sponsored medical care always will be more costly and less-effective than medical that is not state-run.

Now, I don't mean the present system with third-party payments, strict licensing requirements, price controls, allocation controls, and a horde of bureaucrats poring over every decision and second-guessing doctors. I am not speaking of a system that is full of government mandates, from certain kinds of screenings, mandatory injections of children with Lord-knows-what, government favortism, and requirements that taxpayers fund birth control so that college students can have a subsidized hookup culture.

Look at those industries which have been relatively free. Over time, quality and service improve, and prices to consumers go down. Now, Krugman will argue that medical care is DIFFERENT, and that it is not subject to the laws of economics. Hmmm, in other words, medical care is not an economic good, which only could mean that it is not scarce. Or, he might argue, government regulatory burdens and government price controls and mandates somehow can overcome or eliminate the reality of scarcity.

When Krugman writes of costs, he means administered numbers, not opportunity costs. When he calls for mandates, he means that consumers should not have free choice and that the state should choose, since a Progressive state is wise, as long as it is populated by people who "believe in government."

So, we will have the forever spitting matches in which people like Krugman will claim that things are getting better and that one day, we can be like Europe. That the state can magically do away with scarcity is just one more Keynesian fantasy.

Friday, March 16, 2012

When it comes to the use of certain kinds of fuels, myths abound and especially myths created and nurtured by Progressives in academe, government, and the media. Given that Paul Krugman is a card-carrying Progressive, one might expect him to propagate such myths, and he does in his usual Pavlovian style.

Some months ago, he claimed that the use of oil and coal creates such huge negative externalities that the very use of these fuels actually destroys overall wealth. In other words, according to Krugman, if we stopped using coal and oil, we would be wealthier than we are now, our economy more productive, and we would be healthier. Granted, that might sell in the salons of the Progressives, but if one steps back and applies simple logic to what he is saying, the outcome might be different.

(One is reminded of Sen. Harry Reid's "Oil makes us sick. Coal makes us sick," line a few years back. Reid makes us sick.)

In his recent column, Krugman makes the claim that Republicans claim that if the Obama administration were to allow more drilling, the economy would boom. He writes:

...Mitt Romney claims that gasoline prices are high not because of saber-rattling over Iran, but because President Obama won’t allow unrestricted drilling in the Gulf of Mexico and the Arctic National Wildlife Refuge. Meanwhile, Stephen Moore of The Wall Street Journal tells readers that America as a whole could have a jobs boom, just like North Dakota, if only the environmentalists would get out of the way.

Since I am not following the political speeches by the Republicans, I don't know if Romney has made such claims or not, and I have no idea of Moore is saying what Krugman says he is. (Yes, I have reason to doubt the veracity of Krugman's claims, given that the guy has told us that the late 1970s were a golden age of the American economy, that Teddy Kennedy, the authors of a lot of deregulation, actually were conservative Republicans, and that World War II brought prosperity to America.)

Now, if Romney and Moore actually said those things and in the context of which Krugman makes his claims, then I would agree in part with Krugman. Even a much larger energy boom (with coal, oil, and natural gas) than what we see now would not lower unemployment levels across the country by all that much, but certainly we would be better off economically than we are now.

Unfortunately, Krugman makes two major errors involving simple opportunity cost, neither of which surprise me, given that Keynesians want us to claim that in a liquidity trap, the opportunity cost of using factors of production is near-zero (yet, those factors are well-paid when a government "stimulus" magically brings them to employment).

The first is something that Krugman has ignored throughout his writings on energy: the rapid expansion of the dollar. Oil worldwide is priced in U.S. dollars, and when the Federal Reserve System "fights" the downturn by showering the world with that money, one should expect oil prices to rise regardless of how much turmoil there is in the Middle East.

Yes, the saber-rattling HAS made oil markets more unstable and more volatile, but when Krugman declares that the two-ton elephant in the living room really is a tea cozy, he is not being honest. For that matter, I find it interesting that an economist of Krugman's stature is claiming that supply issues matter in oil but don't matter in money.

Krugman's second problem comes with the following statement:

And this tells us that giving the oil companies carte blanche isn’t a serious jobs program. Put it this way: Employment in oil and gas extraction has risen more than 50 percent since the middle of the last decade, but that amounts to only 70,000 jobs, around one-twentieth of 1 percent of total U.S. employment. So the idea that drill, baby, drill can cure our jobs deficit is basically a joke.

Why, then, are Republicans pretending otherwise? Part of the answer is that the party is rewarding its benefactors: the oil and gas industry doesn’t create many jobs, but it does spend a lot of money on lobbying and campaign contributions. The rest of the answer is simply the fact that conservatives have no other job-creation ideas to offer.

The impact of ANY industry is not simply the number of jobs that are directly created within that industry. Does Krugman argue that agriculture is insignificant in this country because only about two percent of the population is involved directly in farming? For that matter, he recently argued that higher education is extremely vital to our society, yet the number of people employed in that field is tiny.

No, what he is saying is that he does not like the energy industries, so he is free to apply different standards to them than he does elsewhere. That is not economic analysis; it is political hackery, period.

Tuesday, March 13, 2012

Paul Krugman really does not seem to understand the effect of third-party payments, and he especially does not understand when it comes to the government and the cost of higher education. In a recent post, he implies that anyone who does not favor massive increases in Pell Grants does so because he does not want the "less fortunate" to have educational opportunities.

Of course, I have a solution: places like Princeton, Harvard, Yale and Stanford have huge endowments. Why not just offer free tuition at these places to students who are "less fortunate" and have admissions policies that will guarantee that people from poor schools can be accepted, no matter what their academic performance might be.

You see, Krugman both claims to be against a stratified caste system, and yet he demands that the USA become like Europe which is heavily stratified and where one's location in the higher-education hierarchy determines ones future. For that matter, the old Soviet Union had the same kind of system.

However, once upon a time, the USA was not stratified in this manner, back before the Progressives gained power and decided that "credentials" were more important than real qualifications. If Krugman really wished to get rid of this "caste" system he claims exists, then he would be in favor of giving entrepreneurs the freedom to produce and end the various regulatory policies of licensing and the like that serve to hold back deserving people.

Sunday, March 11, 2012

Paul Krugman is on the austerity kick again, and in part, he is right. The austerity measures that have been imposed upon Ireland and Greece by the European Union, are awful, and they are imposing a lot of suffering.

There are some things that Krugman is not saying, however, and I think they bear mentioning. First, we forget that the banks in Europe, plus the European Central Bank, were all-too-anxious to lend billions to Greece even when it was obvious that the Greek government was irresponsible and that Greece has some of the worst government employee unions in the world.

(I know, I know. Public employee unions are great because they encourage spending, and everyone knows that spending creates prosperity, so the unions in Greece simply were spreading wealth.)

Yet, the average Greek must face a grim future because the banks need to be saved. Yes, the bankers of the world most fear a series of world-wide runs, and so the Greeks must pay back the loans, or at least pay back a lot of the loans.

By the way, one of the features of "austerity" programs is raising taxes and tax rates. Not that Krugman mentions this point; all he says is that it is bad that governments are spending less, and that the road to prosperity is paved with government paper.

I am among those who believe that default is best, and that Greece would be wise to leave the euro. Now, where I believe Krugman is wrong is when he thinks that Greece, if it went back to the Drachma, could inflate itself into recovery. He does seem to believe that the USA definitely could do that:

...the main point is that America does have an alternative: we have our own currency, and we can borrow long-term at historically low interest rates, so we don’t need to enter a downward spiral of austerity and economic contraction.

Yes, the USA can borrow and print itself into economic recovery and beyond. Or so says Paul Krugman.

Friday, March 9, 2012

Paul Krugman claims (implausibly) that he was the first (or one of the first) economists to point out that the hot housing market really was a financial bubble. Of course, Krugman two years earlier had claimed that Alan Greenspan would have to create a housing bubble in order to revive the economy. (Krugman claims that he was just being tongue-in-cheek, and I will let readers decide for themselves.)

Signs of a "new era" in housing are everywhere. Housing construction is taking place at record rates. New records for real estate prices are being set across the country, especially on the east and west coasts. Booming home prices and record low interest rates are allowing homeowners to refinance their mortgages, "extract equity" to increase their spending, and lower their monthly payment! As one loan officer explained to me: "It's almost too good to be true."

In fact, it is too good to be true. What the prophets of the new housing paradigm don't discuss is that real estate markets have experienced similar cycles in the past and that periods described as new paradigms are often followed by periods of distress in real estate markets, including foreclosure sales, bankruptcy and bank failures.

Granted, Thornton is from the Austrian School, so he can't possibly know anything about economics or what happens when the Fed forces down interest rates. And given that Austrians are so ignorant about everything, I will use another Austrian, Doug French, to give a counterpoint to Krugman's latest missive about higher education.

Krugman's latest column attacks Republicans for questioning ANYTHING about higher education, claiming that anyone who might have such thoughts is championing ignorance. I hate to say it, but it is not just the Republicans who are asking some serious questions about what is happening and whether or not our system of higher education is sustainable.

Krugman writes:

Here’s what the candidate told the student: “Don’t just go to one that has the highest price. Go to one that has a little lower price where you can get a good education. And, hopefully, you’ll find that. And don’t expect the government to forgive the debt that you take on.”

Wow. So much for America’s tradition of providing student aid. And Mr. Romney’s remarks were even more callous and destructive than you may be aware, given what’s been happening lately to American higher education.

I hate to say it, but most "student aid" is in the form of loans, and when one takes a student loan, their is no divorce from it until every farthing is repaid. (Student loans cannot, by law, be figured into bankruptcy proceedings, so if one owes huge amounts of money and cannot pay it back, tough luck. The government will make your life miserable, and in a recent case in California, government agents literally sent a SWAT team to a house where a man's estranged wife was behind on her student loan payments.)

Krugman goes on to blame Republicans and anyone else who refuses to submit to the fantasy that state governments can continue to spend at Krugman-approved levels, including continuing payments to public colleges and universities at pre-depression levels. However, because he claims that the only thing that is needed solve the problems of higher education is for taxpayers to throw more money at it, he ignores the real underlying financial crisis that involves higher education.

Doug French knows otherwise. In a recent article, he takes on what he calls the "Higher Education Bubble" and throws cold water on the fantasies that Krugman is trying to weave. He writes:

Like all booms, higher education has been fueled by credit. In June of last year, total student-loan debt exceeded total credit-card debt outstanding for the first time, totaling more than $900 billion.

All of this credit has pushed the average cost of tuition up 440 percent in the last 25 years, more than four times the rate of inflation. But while the factors of production on campus have been bid up, just as they are in any other asset boom, the return on investment is a bust. In 1992, there were 5.1 million mal-employed college graduates. By 2008, the number was 17 million.

With Krugman, the answer is simplistic: throw more money into the higher education fire and out of it will appear a wonderful, golden calf.

French, on the other hand, sees the trends and the hard numbers to boot. And while Krugman might claim to have been a prophet on the housing bubble, he clearly is blind to what is happening in higher education. And when someone tries to point out the realities, Krugman does what Krugman always does: he makes insults and partisan statements.

I will go further: higher education really has become a consumer good instead of a producer's good for many people. As a college professor, I can attest to that last statement, as much as I wish that Krugman were correct. But he is not.

Interestingly, Krugman neglects to provide any data on British government actions. In particular, although he asserts that British policies have simply been to "slash spending," he neglects that Britain ignored the advice of free-market supporters by increasing tax rates significantly, such as raising the top marginal income-tax rate to 50 percent, the capital-gains-tax rate to 28 percent, and the value-added-tax rate to 20 percent. More damaging to his view, as can be seen on tables 25 and 27 of this Organisation for Economic Co-operation and Development (OECD) document, British spending has experienced no significant cuts and still represents a sharp increase compared to prerecession levels.

This does not exactly square with Krugman's claims, but that hardly is unusual.

Monday, March 5, 2012

One of my main contentions with Paul Krugman is that I don't believe the man understands even the basics of Price Theory. Yes, I am sure he can dazzle anyone with mathematical models on the subject, but nonetheless he represents the Progressive Wing of modern academic economics, and I have yet to meet a Progressive that can give me a clear explanation of what happens when prices change.

Of course, those same speculators were at work when gasoline prices went down, and especially nearly four years ago when prices dropped from more than $4 a gallon in the summer of 2008 to about $1.50 near Christmas that same year. One wonders, if speculation occurs, how it seems that speculators are involved ONLY when gas prices go up.

I will be watching to see if Krugman joins this bandwagon, or if he writes something to the contrary. If he says nothing at all, then he is proving that as a political hack, he will protect the Democrats, even when they wallow in utter economic ignorance.

And, yes, I believe that when we have a commodity that is priced world-wide in dollars, and when the chairman of the Federal Reserve System openly attempts to shower the world with dollars, we are going to see price increases in things like crude oil and gasoline. Oh, and Krugman already has discounted that possibility.

Thursday, March 1, 2012

Whenever someone mentions inflation, Paul Krugman is all over the statement, trotting out the CPI which shows relatively low overall price increases at about three percent. (He holds this as "proof" that government can massively increase the monetary base and spread dollars around without having any ill economic effects.)

However, those of us who regularly go grocery shopping and who purchase fuel have seen a much different picture, one that Krugman claims does not exist. And now there is more proof that inflation is worse than what the government and its political operatives (like Krugman) have been claiming:

Forget the modest 3.1 percent rise in the Consumer Price Index, the government's widely used measure of inflation. Everyday prices are up some 8 percent over the past year, according to the American Institute for Economic Research.

The not-for-profit research group measures inflation without looking at the big, one-time purchases that can skew the numbers. That means they don't look at the price of houses, furniture, appliances, cars, or computers. Instead, AIER focuses on Americans' typical daily purchases, such as food, gasoline, child care, prescription drugs, phone and television service, and other household products.

The institute contends that to get a good read on inflation's "sticker shock" effect, you must look at the cost of goods that the average household buys at least once a month and factor in only the kinds of expenses that are subject to change. That, too, eliminates the cost of housing because when you finance your home with a fixed-rate mortgage, that expense remains constant until you refinance or move.

The article continues:

The group maintains that this index better measures the real-world impact of price changes, particularly for people on a budget. And, largely as the result of the recent run-up in gas prices, this "everyday price index" (EPI) suggests that Americans are being pinched far more tightly than the official inflation measure would have you believe.

Over the past year, the EPI is up just over 8 percent, according to the economics group. The biggest factor: Motor fuel and transportation costs are up 21.06 percent from year-ago levels. The cost of food, prescription drugs, and tobacco also have increased faster than the government's inflation measure, rising 3.56 percent, 4.21 percent, and 3.4 percent, respectively.

In other words, the daily purchases definitely are in the crosshairs of inflation, and I only can imagine that things will get worse. Krugman likes to claim that commodity prices are "volatile," which supposedly explains why they have skyrocketed. It would have nothing to do with Ben Bernanke's policies at the Fed.

Of course, let us be honest. The only think in the end that Keynesians have is inflation, and they believe that if the government inflates enough, somehow this will "rescue" the economy. Yes, reducing real incomes of Americans by creating more dollars somehow is going to "strengthen" the economy. Right.

About Me

I teach economics at Frostburg State University in Frostburg, Maryland. We are located on the Allegheny Plateau, and we have cool summers and tough winters.
I am the single father of five children, four of them adopted from overseas and I have two grandchildren. My family and I are members of Faith Presbyterian Church (PCA).